Make Your Mark Through Sustainable Investing

As you approach retirement, you may find yourself thinking about the legacy you want to leave behind. For many, this isn't just about passing wealth on to loved ones—it's about positively impacting the world around them.

What if you could do both? Rather than simply donating, why not invest your money in companies and funds that drive positive change for society, the environment and the planet? This approach is known as sustainable investing. Sustainable investing enables you to align your investments with the values and causes that matter most to you, while still aiming to achieve financial returns.

In this article, we’ll explore the basics of sustainable investing, why this philosophy is important, and we’ll also discuss some common sustainable investment strategies you might consider.

 

The Great Wealth Transfer

Over the next few decades, many experts say we will see an unprecedented transfer of wealth from older generations to younger ones. Estimates suggest¹ that tens of trillions of dollars in assets will change hands in the United States alone.

This shift of wealth creates significant potential for these generations to reshape economic and social landscapes. In today’s digital society, consumers and investors have unprecedented access to information, which has led to greater awareness of social and environmental issues. As people become more conscious of local and global issues, they are paying more attention to how their money is used and where their investments are going. And, as the Great Wealth Transfer passes wealth to these socially and environmentally conscious generations, sustainable investing is poised to become a key strategy for driving change.

Meanwhile, for those among the older generations who are planning out their estate, this same strategy presents a unique opportunity to shape their legacy. If you are planning the transfer of your wealth, you might want to consider sustainable investing as a strategic alternative to traditional charitable giving.

 

What Is Sustainable Investing?

Sustainable investing, also sometimes called socially responsible investing, is an investment approach that considers environmental, social and governance (ESG) factors. These criteria provide a framework for evaluating a company's impact and ethical standards.

Environmental criteria refer to a company’s environmental footprint. This includes its policies and actions around carbon emissions, pollution, renewable energy use, deforestation, biodiversity, water management, waste management, and more.

Social criteria refer to a company's relationships with employees, suppliers, customers, and communities. This covers commitments to workplace health and safety, labor standards, human rights, product integrity, and consumer protection.

Governance criteria refer to a company's governance standards, practices, and behavior. This can include, for instance, board diversity, executive compensation, auditing practices, bribery/corruption policies, lobbying activities, and general corporate ethics.

By considering these factors alongside traditional financial metrics, sustainable investors aim to generate financial returns while also making a positive impact on society and the planet.

Some examples of sustainable investing include:

• Avoiding investments in companies that contribute heavily to pollution and carbon emissions.
• Investing in funds focused on solutions for environmental challenges like clean energy, sustainable food/agriculture, or water conservation.
• Supporting organizations and businesses aimed at addressing social issues like affordable housing, quality education, or access to healthcare.

Sustainable Investing Strategies

There are several approaches to sustainable investments, each with its own nuances and considerations. Some common strategies include:

• Exclusionary screening: Avoiding investments in companies or industries that are involved in activities deemed undesirable or unethical, such as tobacco, gambling, or weapons manufacturing. This approach allows investors to align their portfolios with their personal values by excluding certain sectors or companies.
• Impact investing: Investing in companies, organizations, or funds with the specific intention of driving positive social or environmental impacts. This approach—a proactive form of sustainable investing—aims to support specific, tangible, and measurable outcomes while also generating a financial return.
• Shareholder advocacy: Engaging with companies through shareholder resolutions, proxy voting, and direct dialogue to encourage improved ESG practices. This approach allows investors to use their ownership rights to influence corporate behavior and drive positive change.
• Community investing: This strategy involves directing capital towards community development financial institutions or local projects that provide financial services to underserved communities. These sustainable investments can help promote economic development and social equity at a local level.

It’s important to note that there is no single “correct” strategy. Each investor's specific values, risk tolerance, and financial goals will play a role in determining the most appropriate sustainable investing strategy. Additionally, it's important to work with your financial professional to conduct thorough research on any investment opportunity, as not all funds or companies labeled as "sustainable" may align with your personal values, risk level, or financial performance standards.

Why is Sustainable Investing Important?

One key reason sustainable investing is important is its potential to promote long-term economic stability and growth. By supporting businesses that implement environmentally friendly practices, you can contribute to the development of conscientious and forward-thinking businesses and industries.

Sustainable investments also promote social equity and corporate responsibility. Companies that adhere to high social standards often demonstrate better relationships with employees, customers, and communities. By investing in companies with strong labor practices, human rights policies, and community engagement, you contribute to a more equitable and just world.

Moreover, sustainable investing aligns financial returns with personal values. For many investors, the idea of making money while also making a difference is highly appealing. This alignment encourages more people to engage in investing, knowing that their money is supporting causes they care about.

While traditional charitable giving can still be a part of your strategy, sustainable investing offers a compelling way to align your investments with your values while also potentially achieving strong financial returns. And, as the cherry on top, you’ll feel a sense of purpose and fulfillment, knowing that your investment dollars are contributing to a better future for generations to come.

As you look to your future in retirement and beyond, consider how you might want to incorporate a sustainable investment philosophy into your legacy and wealth transfer strategy. If you’d like to learn more or discuss your options, contact the office today.